Puerto Rico Oversight Board Finally Starting to Focus on Debt Restructuring
Puerto Rico's unpayable and crushing debt may finally get some adjustment.
The Puerto Rico Oversight, Management and Economic Stability Act passed back in June by the U.S. Congress created the Financial Oversight and Management Board of Puerto Rico to resolve the debt crisis.
After months of inaction, the board recently sent a letter to current Governor Alejandro García Padilla and incoming Governor Ricardo Rossello stating areas for fiscal plan review and that debt restructuring talks are finally moving forward.
Puerto Rico has over $70 billion in debt thanks to decades of extreme corruption, mismanagement in San Juan and Washington DC, predatory lenders, lack of democracy and a declining population. Much of the debt crisis was created by men in positions of power to enrich themselves and their compatriots.
The Act is supposed to stop predatory actions by creditors and prioritize the payment of pensions and social services ahead of debt payments. It is supposed to reduce child poverty on the island and provide strong bankruptcy tools to return the debt to sustainable levels. The Act temporarily prevents debt collection lawsuits against the heavily indebted island, however, unless a formal debt restructuring process moves forward by February, the moratorium on lawsuits will expire.
One of the problems is that some of the control board's members are some of the same people who helped create the crisis.
Puerto Rico's debt became unsustainable in the last 10 years due to endless borrowing. Public debt grew from a sustainable 63% of GNP in 2006 to just over 100% of GNP by 2015 thanks to U.S. investors’ demand for the Commonwealth’s tax-free municipal bonds — popular because they are exempt from federal, state, and local taxes and are constitutionally guaranteed by the Puerto Rican government — and a corrupt government encouraged to just keep borrowing without considering the consequences.
Bond brokers and financial institutions were more than eager to cash in on the lucrative fees that the bonds generated for them.
It remains to be seen who, besides the Puerto Rican people, end up holding the bag for Grand Theft Puerto Rico.
La Perla neighborhood in Old San Juan outside the walls of Castillo de San Cristóbal.